Professional Documents
Culture Documents
Automobile Industry
Automobile Industry
Automobile Industry
Subject:
Strategic Management
Submitted To:
Sir Mustabsar Awais
Submitted By:
Aneeka Niaz
Roll No:
MBK-M-12-04
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Strategy formulation:
First Doing a situation analysis, both internal and external and both micro-environmental
and macro-environmental. Secondly, alongside with this assessment, targets are set. This
includes crafting vision statements (long term), mission statements (medium term), overall
corporate objectives (both financial and strategic), strategic business unit objectives (both
financial and strategic), and tactical objectives. Finally, these objectives have to, in the light of
the situation analysis, propose a strategic plan. The plan gives details about how to reach
these goals. This three-point strategy formation process determines where you are now, where
you want to go, and then how to get there. These three questions are the basics of strategic
planning.
2.
Strategy implementation:
Is affectation of adequate resources (financial, personnel, time, and computer system support),
developing a chain of command or some alternative structure (such as cross functional teams),
and posting responsibility of specific tasks or processes to specific individuals or groups. It
also involves managing the process. This includes observation results, comparing to
benchmarks and best practices, evaluating the efficacy and efficiency of the process, inspection
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for variances, and changing to another process if necessary. When execution specific programs,
this involves having appropriate resources, developing the process, training, testing the
process, documentation, and integration with (and/or conversion from) legacy processes.
The automobile company does the same thing in each country with no adaptation to
the local market, same product, same way of running the business, same resources
employed in the production this procedure is standardization.
ii.
Secondly, the coordination is to create relation between the country unit to serve the
client in the same way in every country also to respond or attack Competitors
Company to grab part of market for the company.
iii.
Finally, centralization is when the company regroups some of her activity in one
specific location (company home country, or somewhere else), so as the company
take advantages from this particular country such as the car seats will coast lower
than produce it in other country or the quality will be better or to take advantages
from taxes facilities. However the automobile company cannot maintain a
sustainable synergy across border because of the local responsiveness make
pressure on the company too.
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The company cannot negligee the specific demands of each local market and country, every
market has particular characteristics, each country is different from another, this difference
between countries press a lot on the organization of the company.
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efficient hybrid models. The hybrid model cars were introduced in 2001, which was the
perfect time for this new technology to be disclosed. The combination of low pricing and fuel
efficiency began to drive US automotive buyers toward the international companies and away
from the old tradition of owning and driving large SUVs.
The Big 3 lagged behind the international companies when creating fuel-efficient cars and did
not release one until 2004. The Big 3 are working on refining their products, however they are
still lagging behind the international firms. For years the consensus has been that Japanese
automakers build quality cars while the US automakers build unreliable cars that will break
down quickly. Over the past few years, the Big 3 have begun to increase the dependability of
their cars, which is shown by higher rankings from Consumer Reports Magazine.
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For every autoworker there are seven other jobs created in other industries. These industries
include anything from the aluminums to lead to release.
Socio-cultural:
Today's society judges people on the type of car you drive. Society does not like to admit to
this but it is very true. Manufactures know this happens and targets their markets by these
thoughts. For example, anyone who drives a mini van is perceived as a soccer mom. This is
because the manufactures target mini vans to mothers. Anyone who drives a nice vehicle is
thought to be wealthy. No one wants to be seen driving an unattractive piece of junk because of
what other people will think of him or her. Consumers also just feel better when they are
driving a nice or new car, if makes them feel better about themselves.
Another aspect of the socio-cultural is the environmental concerns for the need of fuel-efficient
vehicles. Many environmentalists are worried about the impact that the gas cars have on the
environment. There is even legislation that requires cars to average a certain miles per gallon.
Technology:
The internet has affected just about every industry in the world and has also had a huge impact
on the automobile industry. The buyers referred to the internet before making their purchases
and most of the people went to the auto websites before going and taking a test drive.
Business-to-business marketplaces have given the industry many opportunities because of the
internet, such as more efficiency and lower cost. Ford, GM, and Daimler Chrysler announced
in 2000 their plans to create a global online exchange for suppliers and the original equipment
manufacturers.
Concerns for the economy and global warming have caused the automobile industry to develop
alternate fuel vehicles. In the beginning, automakers did not want to look into the development
because of the high cost and the many risks involved. Because of new legislation, they had no
choice but to come up with the technology to make the fuel-efficient cars. The automakers
decided that electric cars would be the best way to meet the legislation demands. "Early
models were unpopular because of slow cruising speeds and lack of performance, but by the
end of the century, electric car production began to be practical."(Motor Vehicles) At the end of
the 1990's manufacturers was coming up with the technology to produce internal combustion
engine with an electric motor. Toyota and Honda were both selling the hybrid vehicles at retail
value
in
2001.
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Demographics:
For many years now, the baby boomers generation has been the main target market for just
about every product. As their generation is getting ready to retire and spend less money, the
automakers are looking at the younger generations. Right now, the focus is starting to turn
towards the baby boomers children who are in their mid 20's and 30's. Americans today are
choosing to purchase larger vehicles over passenger size vehicles. Today's generations are still
buying the trucks, minivan and especially the SUV's, even with the ridiculous gas prices. It is
not only the younger generations either; the boomers who are all reaching the retirement age
are more interested in the bigger vehicles. There activities after retirement are way more active
than their parents. They are not just sitting around and playing golf or going on vacations. They
are still working in some ways and being more active in their grandchildren's lives. Since the
boomers are still active, they want to drive the same vehicles that their children drive in order
to make life that much easier. The manufactures target the sales of their cars to certain people
and their geographic location. Convertibles are not marketed toward people who live in parts
of the world that are cold all year round
Global:
General Motors, Ford Motor Company, Daimler Chrysler, BMW, Volkswagen, Volvo, Toyota,
Mazda, and Nissan Motor Company come together to create a new trade relationship created
the Alliance of Automobile Manufacturers. The organization was to replace the American
Automobile Manufacturers Association that only consisted of American manufacturers, the
goals of the associations "were to work together on public policy matters of common interest to
provide credible industry information and data, and seek consistent global regulatory
standards. The manufacturers also started merging in the late 1990's. American companies
started buying foreign manufacturers created some of the largest foreign takeovers.
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It requires most experienced automobile labor force, and an educational system that provides
industry-specific, on-the-job training. Skilled workers give a great advantage to manufacturers
as they have been producing high-quality cars for years and their craftsmanship symbolizes
durability.
Companies expend a substantial amount of money on research and development projects
annually and, as a result, innovation is a key factor in leadership in the automobile industry.
Moreover, BMW open a forum on its web site to solicit innovation from outside users who can
submit ideas about design or additional features for the firms products resulting in a wide
range of ideas to consider. If they pursue an idea that comes from outside the firm, BMW takes
the further step in consulting with the inventor. Both the experienced labor force and research
on innovation have led to manufacturers produce very high quality cars.
Transportation is another factor condition for the automobile industry that is currently a point
of contention between manufacturers and the government. Vehicle manufacturers have relied
heavily on highways to transport finished cars because it is easy and fast. Truck transport is
the quickest way to deliver cars and timeliness in delivery to dealership or docks for export is
very important.
manufacturers transport cars on highways but rather is pushing them to use existing railroad
systems as the main transportation.
advantage with its transportation system as well structured and maintained railroads connect
with a network of ports and delivery points throughout world.
Demand conditions:
Customers have many different reasons and conditions for buying an automobile which makes
the industry continually diversify its products from small cars to buses to meet these various
demands. The industry is comprised of components including tires, passenger and commercial
vehicles including electric vehicles, utility vehicles, construction vehicles, cranes, forklift
trucks, motor homes, tractors and other agricultural vehicles, trailers, containers, motorcycles,
and retail, distribution, and maintenance of cars. Customers carefully search the best vehicle
that fits their budget, lifestyle, and taste and demand a wide range of choices. Automobile
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customers really know what they want and they search for a specific car that meets their needs
with a product range from the Indian Tata whose MSP is $2,500 to luxury cars such as Ferrari,
Porsche retailing for $250,000. Sophisticated customers push automobile companies to
innovate and add new features to the automobiles. For instance, people want to hear their own
music in their car and to satisfy this need manufactures have been trying to install different
music kits in cars.
Consumers in World are becoming more demanding about fuel efficient vehicles. Hybrid cars
have been the rising star in this industry as people become more environmentally concerned
and look for the cars that use more electric and alternative fuel sources and less oil.
Firm Strategy and Rivalry:
This automobile market in World has high barriers to entry with high fixed costs; start-up costs
are daunting. Companies in this industry require strong supply chains; new entrants would
need to integrate with one of the existing companies with strong brand recognition as it is hard
to break into the strong existing connection between suppliers, manufacturers, and customers.
Competition is severe as there are many companies competing with each other cruelly in a
shrinking market due to the declining economy. The primary strategy in this market is
innovation. Companies have to come up with new designs or add features or produce different
models to gain market share in every different segment. Innovation in all various product lines
allows manufacturers to serve many different customer groups with different brand names.
Related and Supporting Industries:
Automobile industry has many advantages in terms of related and supporting industries.
Automobile manufacturers have a pool of well qualified candidates to choose from as well as
public and private organizations to collaborate with in research and development.
Steel is the main element of the car manufacturing. Tires are another critical part of the
industry all kind of raw material is available with the industry easily. Interior door paneling,
development of car transmissions, and production of water-based paints are all other examples
of related and supporting industries in the region which helps supply high quality components
to the auto industry.
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as those, the subway is the most effective means of transportation. However, in most places a
person must have access to an automobile in order to get around.
Intensity of Rivalry among Competitors:
Rivalry among the competitors is very strong is this industry. The major competitors are so
closely balanced that it increases the rivalry. In order to gain market share in the automobile
must gain market share by taking it from their competitors. One of the other reasons there is
such high rivalry is that there is a lack of differentiation opportunities. All the companies make
cars, trucks or SUV's. The competitors are compared to one another constantly. The price,
quality, durability, and many other aspects of different manufacturers are greatly taken into
consideration when deciding what type of vehicle to purchase. When the different
manufacturers advertise they even compare their products to their competitors. For example,
the commercials will focus on areas where the company outperforms its competitors.
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considerable financial resources. In the second tier, global reach is not required, even though
there are some tendencies towards internationalization in this sector. The competences needed
in the third-tier are much less, but the returns are much lower. Finally, the aftermarket section
offers a completely different route to customers. The business is much more fragmented and
access is easier. However, this section is very price-competitive. The changing nature of the
global assembly industry in the 1990s was likely to significantly affect the components
industries in developing countries. However, the full extent of this change cannot be
understood without reference to more general changes in auto industry value chains.
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These firms will often work to designs provided by assemblers or global mega suppliers. They
require process-engineering skills in order to meet cost and flexibility requirements. In
addition, the ability to meet quality requirements and obtain quality certification (ISO9000 and
increasingly QS9000) is essential for remaining in the market. These firms may supply just one
market, but there is some evidence of increasing internationalization.
Third-tier suppliers:
These firms supply basic products. In most cases, only elementary engineering skills are
required. In the third-tier of the component chain, skill levels and investments in training were
limited. At this point in the chain, firms compete predominantly on price.
Aftermarket:
A further important segment of the automotive value chain is the market for replacement parts.
This is the sector that many firms in developing countries first moved into, even before local
assembly sectors were developed. Nowadays, there is an international trade in aftermarket
products. Firms in this section compete predominantly on price. Access to cheaper raw
materials and process engineering skills is important. Innovation is not required because
designs are copied from the existing components, but reverse engineering capability and
competence to translate designs into detailed drawings are important.
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Strengths
pioneering culture
Brand repute
Weaknesses
Large recalls
Opportunities
Threats
Intense competition
Natural disasters
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in the inbound logistics, due to the usage of Just-in-time production method, because it
minimizes inventory cost. The other most valuable part of the chain is the Human resource.
The employees are supposed as Human Capital. Toyota's HR department is aware that happy
employees translate into better job performance. This equates to the kind of increased
production and quality that renders satisfied customers.
PESTEL Analysis:
Political:
In times of crises the Japanese government is subsidizing Toyota. The adoption of new
regulations in Europe, concerning the emissions of CO2 and reducing the impact of it on the
environment is another issue concerning Toyota. The company continues to exploit its knowhow of developing hybrid cars. Also there is political instability in the main oil-producing
countries in the world, leading to higher oil prices and less demand for cars.
Economic:
The collapse of the international economy leaded consequently to the falling of the power of
the yen, which devaluates the prices of Toyota`s shares on the stock exchange. The economic
crisis also diminishes the demand for Japanese electronics and cars. In additions there was a
decline in the world buying power and high prices of the crude oil.
Social:
The population in the world as a whole is aging, which means that less people are interested in
new car models. Also, as a consequence from the economic crises, more people are using
alternative transportation means but cars, and by this again leading to excess production
capacity.
Technological:
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The segment that Toyota occupies, especially the hybrid segment, is experiencing growth due
to global economic factors. To sustain market position, many brands were encouraged in their
own efforts to bring more hybrids to the market. Yet, new entrants to this segment have tried
various strategies without much success.
Toyota is a leader in innovative technology, environmental initiatives, and quality.
Nevertheless, given the financial situation the threat may come from other non-automobile
personal transport or public transport.
Ansoff Matrix:
a) Market Penetration
Suitability:
The market penetration strategy is most suitable for growing and emerging markets. But in this
case, the car market is already well-established and penetration would be made much
easier if the target market is growing. Considering that Toyota is such an established
name within the automotive industry, the risk of opting to penetrate the market is not
that significant barrier.
Acceptability:
Management may worry that targeting the customers of rival car manufacturers may result in
retaliation and it is likely a retention strategy to be considered as a possible and preferable
option. Since a fair amount of costs are involved with implementing this specific strategy, it is
expected that Toyota would need to improve both product quality and levels of service, backed
by promotional spend. However, if the risk of undertaking such a strategy does not pay off,
both shareholders and staff may be cautious. That, on the other hand, would lead to
shareholders losing value in their shares and also the employees possibly losing their jobs as a
result of the failed venture and lost revenues.
Feasibility:
The fact that Toyota's range is one of the largest in the automobile world and already exists in
each segment of the car market is determining factor for potential penetration on the market.
This suggests that Toyota is in a position to go ahead and penetrate any of these existing
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markets, where the most likely target market for this strategy would be the small car market
which is predominantly aimed at young people.
b) Product Development:
Suitability:
Given the fierce high competition in the automotive market, it is necessary for car
manufacturers to keep up to speed with the latest developments. Toyota, like many
other car manufacturers is known for spending huge amounts of money on research and
development. It spent the most on research and development of any company in the
world in 2008. The company spent $8,994million on R&D, which is 4.4% of sales.
Toyota was running an estimated Formula One budget of 190m per season and last
year the budget was estimated of $445 million. The company is likely to continue to
build on the technology found with the Prius and other 'new-fuel' alternatives. Toyota's
Global 21 project, better known as Toyota Prius gives the company first mover
advantage.
Considering the rapidly vanishing natural resources and more specifically oil, future plans of
Toyota include development of Camry Hybrid fueled by compressed natural gas (CNG)
which shows that there may be possibilities of using a whole new fuel in the future.
Also, TMC is planning to launch 10 new hybrid models by the early 2010s, in various
global markets. Another key factor, affecting the market position is the launch of the
'urban commuter' battery-electric vehicle (BEV) by 2012. And finally, Toyota has a
wide range of small cars already at their disposal that inevitably will continue to
enlarge the niche that Toyota occupies.
Acceptability:
With rising fuel prices, more drivers are likely to be looking for ways to cut the costs of
motoring and to drive environmentally friendly vehicles. Moreover, shareholders and managers
will be interested in maintaining the superior company image by being environmentally
responsible. That is why Toyota continues to spend more on research, in order to fulfill its plan
to release more hybrid cars in the future. It is likely that its good reputation that has stemmed
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from the Prius model will meet the consumers' needs. Furthermore, the Government will be
satisfied about Toyota's decision to continue with the research and manufacture of new and
innovative fuel alternatives.
Feasibility:
Toyota is clearly serious about developing this new technology further and perceives it as
being the future in this industry. They have successfully released the Prius model and therefore
it is likely that if they unearth more ground-breaking technology they will be more than
capable to launch it in the correct way. Given that Toyota is already making rapid progress on
developing new products for the existing car market it is certainly feasible to continue develop
in this market.
Considering the two examined strategic options, most likely the best option for Toyota is
Product Development for existing market. The company has proved itself and exists in each
segment of the car market. Its best option is to continue to develop the brand and the products
that are demanded most. Though consumers are becoming more environmentally conscious
which enforced the excellent ability of the company to research and develop new fuel efficient
technologies. Second, the corporation plans to release 10 new hybrid models in the near future.
Toyota has the first mover advantage with hybrid synergy drive and sufficient expertise when
developing small, fuel-efficient vehicles and there is an increasing demand for these cars.
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Strengths:
Global presence
Weaknesses:
Brand intensity
Bureaucratic culture
Car recalls
Opportunities:
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Threats
Intense competition
Exchange rates
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successful only to the extent that they provide competitive advantage over the strategies
pursued by rival firms. Therefore, if we look at the GM motors in this section, in the 1970s and
1980s, competition in the US automobile industry had become much stronger with the increase
of foreign rivals such as Honda, Toyota and Nissan. Although GM was a leader of the
automobile industry at that period of time, its rivals had started to compete with GM providing
some different offers. For example, Toyota started to produce cars with lower price than GM
cars, whereas the quality of cars were high. So that, the competitors of GM became wellknown brands ,while GM had difficulties with competing with them.
Barriers To Entry:
According to Porter, new capacity may be brought to an industry by new entrants.
Furthermore, gaining the market share, and getting high proportion of resources can be
achieved by new entries. Meanwhile, the presence of new corporations in any industry can
push the prices down and may decrease the profitability. Although these entries may seem as a
threat, those may protect the established companies. During the both world wars, GM made a
high profit, and it enlarged its business. Being a leader of the sector and being a well-known
brand placed the GM's competitors very difficult position to entry the industry. Especially for
the smaller firms, competing with the GM was very hard. In early 20s, GM invented selfstarters by differentiating itself from Ford, later on, in 1970s; Japanese and European
companies introduced their fuel-efficient models to the industry.
Pressure of Price From Substitutes:
All of the companies are in the competition broadly with the industries manufacturing
substitute and complementary products. In this highly competitive automobile industry, any
change in the prices on substitutes such as gas, tires, could have a important effect on the
demand for automobiles. If we look at the GM, recent rising gas prices are highly to get a
bigger effect on GM. Generally GM's cars are energy inefficient. Therefore, this will have
great impact on GM.
Bargaining Power of Buyers:
Buyers compete with the industry by forcing down prices, bargaining for higher quality and
more services, and playing competitors against each other, all at the expense of industry
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Technology which enables the customers get in touch with the call center of GM in an
emergency situation.
Conclusion:
In conclusion, analyzing the automobile industry is done by using some strategically analyzing
methods, such as Porter's FF, Value Chain, BCG Matrix, and Swot Analysis. Searching and
applying the systems into the automobile industry is quite broad because of the industrys long
time history which is more than a hundred years. In to this content, the industry is analyzed in
detail according to factors of competitive advantage, internal and external.
General Motors:
Of course, every single company and firm can make mistake in their business life cycle,
however, minimizing those mistakes is one of the essential area for the firms. If we turn to
GM, they had been really successful in the industry when there were no any other competitors.
However, once GM's rivals entered to the business, GM started loses its market share globally.
Because they overlooked at them, they didnt do many things until they lose their profits. After
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that , they changed some system, they started to struggled with their rivals. So that, with
considering all the analyzed strategic forces above and the company, some recommendations
should be done.
Recommendations:
They should stay ready for even every hard and difficult circumstance, Such as
financial crisis.
Environmental factors should be considered as well for gaining the high quality of
business.
Toyota has to stop making so many dull cars with all the appeal of household
appliances.
The company has to focus more on safety standards, in order to avoid bad publicity.
It can acquire few small companies, to reinforce its market position and expand the
company.
Toyota should separate its hybrid models into a separate brand that will target
customers that are more environmentally friendly.